The golden investment

Throughout the centuries gold has always been a symbol of wealth and high status, and owning gold has lent both individuals and countries a feeling of security against economic disaster.

Individuals have several options of varying risk to consider when investing in gold, ranging from buying physical bullion or coins to keep for generations, to holding stock in mining companies over a shorter term, to trading futures contracts in precious metals.

In the last few years of global recession, people have again been putting their investment faith in gold, pushing the prices up month by month, with it reaching a historic high US$1,600 per ounce in mid-July. While gold has a popular reputation as being a solid investment, and in some cases literally is, the reality is that no one knows how high the price of gold will soar, or when and how far it will fall. A traditional rule of thumb has been that the price of gold rises as the value of the US dollar declines, but in recent years the price of gold has steadily ascended seemingly independent of other factors.

For those who are in the business of buying and selling gold, this could be good news as people start to sell off valuables such as ornaments and gold jewellery to cash in on the high gold prices. The recession also has an effect on people deciding to sell off valuables because they need immediate cash flow. The swapping in on gold for cash is even being seen here on Cayman.

Michel Pacifico and Charlie Thompson are the owners of Cayman Precious Metals where customers can exchange unwanted items made of gold, silver and platinum for cash money.

“Gold is high. It’s going up. We don’t know how long it’s going to stay that way, so we recommend everybody to take advantage of it,” Pacifico says.

In November, Pacifico and Thompson opened their first cash-for-gold location in George Town and their second location July in West Bay. How it works is this. People bring the items in and they are tested to determine the gold content and weight. The price offered is based strictly on that.

“It’s not about the looks. It’s not about where it came from. It’s about the weight and how strong is your gold,” Pacifico said.

To determine the ‘karat’ or percentage of pure gold in the ring, the store representative scratches the ring against a flat testing stone, leaving a streak of metal on the stone. The representative uses acid solutions on the streak of metal to measure its gold content, ranging from eight karat (33 percent pure gold) to 24 karat (nearly 100 percent gold). Jewellery almost never is made of pure gold because it is too soft to be worn practically.

“Gold in its jewellery form is inherently going to be worth less because it’s only a percentage of gold. You’ve got silver and copper and many other metals that they mix in to make an alloy to make it hard enough and strong enough to be jewellery,” Thompson said.

The store representative then weighs the ring, or other piece, on a digital scale in front of the customer. The percentage of gold is multiplied by its total weight to determine how much pure gold the ring contains. The representative checks the real-time New York spot gold price and uses that to make an offer for the ring.

If the customer accepts the offer, then a form is filled out with details of the transaction. All estimates are based in US dollars because that is how the value of gold is measured worldwide. However, customers can choose to be paid instead in CI dollars, the amount of which is determined through the typical exchange rate.

Customers must sign and date the transaction form, and they receive a copy of it along with the store.

“It’s very important that we’re fair to everybody, so we show you exactly what you’re getting for your gold. A lot of gold buyers all over the world don’t do that,” Pacifico says. “Of course, we’re making money, too. We’re not a charity. But we’re open with everybody. We don’t hide any weight. We don’t cheat.”

SCRAP INTO BARS

The pieces the business buys are quickly transported to a bank, where they are kept for a week. After that, the pieces are shipped to a location on the island, where they are scrapped and melted down into bars of pure gold (or other precious metals such as silver or platinum).

Pacifico and Thompson then use those bars to trade out of markets in different countries, such as the US and in Europe. They also have local investors, and people can buy bars from them in half-ounce or full-ounce increments.

The owners, however, do not sell or resell any intact items that they buy. They also deal exclusively with precious metals – usually in the form of jewellery, coins and automatic watches (meaning not battery-operated) – and not other goods such as electronics.

The business is not a pawn shop. “That’s completely different from what we do,” Pacifico said.

The business is not a jewellery store either. “We are not a retail centre. We do not sell,” he said. They also point out that they are a licenced, legitimate business and that people should be aware of the difference when selling goods.

During one Thursday afternoon when the Observer on Sunday reporter was present, the West Bay location received a steady stream of customers of various ages. One young woman did not accept an offer of US$160 for a gold ring, which she said originally cost more than US$500. An older man brought in a gold coin, valued at US$140. Though he seemed satisfied with the estimate, he said he was not interested in selling. Two young men haggled over the value of a gold necklace, that they said a friend was interested in selling. After negotiating a price of US$500, Pacifico nixed the transaction because they could not produce photo identification. Another group of three young men were turned away after being told they had to be 18 years or older to sell precious metals.

SAFETY A PRIORITY

To ward off potential robbers, the owners take multiple precautions, including security doors and closed-circuit cameras with prominent video displays. The inside of the new West Bay location is deliberately austere, with bare floors and the only furniture being a wooden kiosk Pacifico made himself and a borrowed desk and chair. The gold they buy is transported to a bank every few hours, and they only keep enough cash on hand for the day.

“We try to let them know that we don’t have anything here. That will save us from being robbed. We don’t have anything in the store at all,” Pacifico said.

Even though much of gold’s value can be attributed to its image of beauty, glamour and stability, Pacifico and Thompson stress that their business is just like any other, except with more potential risk, even apart from concerns about physical security.

“It’s very dangerous. It’s a dangerous job, a very dangerous job because you need to know what you’re doing. At the same time, it’s a risky business because gold can crash tomorrow, and we can lose a lot of money,” Pacifico said.

NO STOLEN GOODS

They take precautions against receiving stolen items and fully cooperate with police officers investigating possible crimes. People selling items must show photo identification. That information is recorded along with names, contact numbers and descriptions of the items. Pacifico and Thompson hold items they buy in the bank for seven days before melting them down, in accordance with a proposed law urged by the Royal Cayman Island Police Service.

“We are already doing that no matter what because there’s a lot of robbery going on in town,” Pacifico said. “Gold is hot, so they’re targeting gold. When they’re coming to your house, they go straight to your drawers.”

As police are investigating crimes, Pacifico and Thompson allow officers complete access to their in-store video, records of transactions and items they have in the bank.

“Anything that happens with the police, we turn it over, so unfortunately what happens is we’re going to lose that money,” . Thompson said.

Since they opened the West Bay location, police drop in regularly to introduce themselves and establish relationships in case of future investigations.

“They come here as friends, not because they want to see if we’re buying stolen gold. We’re not and they know that,” Pacifico said.

Since they opened the business in November, they’ve already aided in the investigation and prosecution of a thief who sold them stolen jewellery.

“I went to court because we recovered stolen jewellery and helped to prosecute the case personally,” Thompson said. “It’s not something we take lightly at all. If the RCIPS do need access to anything we have, we are fully available. We have cameras, our documentation and also any pieces that we receive.”

The owners are also pushing for additional regulations of gold buyers. They said they would like to see Cayman institute a fingerprint database to help identify criminals selling stolen goods, similar to systems in the US, Europe and Brazil. They’ve also spoken to authorities such as the Trade & Business Licensing Board to give their opinion on the need for specific licences for gold and jewellery buyers.